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Chapter 9—Alternative risky asset pricing models

TRUE/FALSE

1. The CCAPM assumes that a functioning capital market exists that allows investors to achieve their
desired level of personal consumption.

ANS: T
That is, investors make investment choices that allow them to alter their timing of when they
consume, so as to maximise the utility of consumption in the long run.

PTS: 2 DIF: Easy REF: 9.2 Consumption CAPM (CCAPM)

2. According to the CCAPM, if the expected return on the market return is 7% and the risk-free rate
is 5%, the expected return on a portfolio with a consumption beta of 1.5 is 3.1%.

ANS: T
Similarly to the CAPM, we can calculate the return on a portfolio using the consumption beta. E(R)
= 0.05 + 1.5(0.07 – 0.05) = 0.031 = 3.1%.

PTS: 1 DIF: Easy REF: 9.2.3 Empirical performance

3. According to the CCAPM, if the expected return on the market return is 6% and the risk-free rate
is 4.5%, the consumption beta of a portfolio with 6% is 3.0.

ANS: F
Rearranging the CAPM equation, we can find the beta of the portfolio:
0.06 = 0.045 + (0.06 – 0.045), hence  = 0.015/0.015 = 1

PTS: 2 DIF: Moderate REF: 9.2.3 Empirical performance

4. The possibility of arbitrage arises when there is no consensus among investors regarding the
future direction of the market, and thus trades are made arbitrarily.

ANS: F
The possibility of arbitrage arises when mispricing among securities creates opportunities for
riskless profits.

PTS: 2 DIF: Moderate REF: 9.3.1 Arbitrage profits

5. The APT of Ross requires the assumption of quadratic utility.

ANS: F
Ross’s original model did not require the assumptions of either quadratic preference functions or
normally distributed returns, and it did not require identification of the market portfolio of assets
that are necessary for the CAPM.

PTS: 3 DIF: Difficult REF: 9.3.2 The Ross model

6. In a study of the Australian equity market, Faff (1988) identifies up to three priced factors.

ANS: T
 Priced factors are observed in the USA and around five factors seem necessary for pricing. Faff
(1988, 1992) also identifies a small number of factors in Australian equity returns. Using data from
the period 1974–85, Faff (1988) identifies up to three priced factors. In a later paper, the sample
period is increased to include observations up to September 1987, and improved econometric
techniques are applied. In this test, Faff (1992) observes that a five-factor APT model outperforms
a 10-factor APT model and the CAPM.

PTS: 3 DIF: Difficult REF: 9.3.4.1 Tests based on unobservable factors

7. The cross-sectional regression technique of Fama and Macbeth (1973) is used in the Asset Pricing
field to estimate risk premiums.

ANS: T
The cross-sectional regression technique of Fama and MacBeth (1973) is used in the asset pricing
field to estimate risk premiums. Companies are grouped in 20 portfolios sorted by size to reduce
the effect of measurement errors. Five years of data are used to estimate the sensitivity of the
monthly returns to the unexpected changes in economic variables. The sensitivities are then
regressed against returns in cross-section regressions, one regression for each month in the year.
The 12 cross-sectional regressions in each year provide 12 sets of risk premium estimates, which
are grouped together year by year to create a time-series of risk premium estimates for the full
sample period.

PTS: 3 DIF: Difficult REF: 9.3.4.2 Tests based on arbitrarily selected

observable factors

8. The findings of Jegadeesh and Titman (1993) when looking at stocks in the USA in relation to
findings about very strong prior positive or negative performance confer that a profitable
momentum strategy appears viable and can be assessed by assuming a long position in the winner
portfolio and a short position in the loser portfolio.

ANS: T
It is true, as stated above. Stock returns appear to exhibit momentum whereby the path of prior
returns influences future direction.
PTS: 1 DIF: Moderate REF: 9.4.3 Carhart’s extension

9. The dividend discount model is often used for the purpose of identifying factors in the
international CAPM.

ANS: F
In a globally integrated market, it is international market forces that are systematic. However, this
model suffers from similar criticisms as the CAPM, in that the global market portfolio can never
be identified.

PTS: 3 DIF: Difficult REF: 9.5.3 The CAPM or the ICAPM?

10. The international CAPM avoids the critique regarding the identification of the market portfolio, as
raised by Roll (1977).

ANS: F
In a globally integrated market, it is international market forces that are systematic. However, this
model suffers from similar criticisms as the CAPM, in that the global market portfolio can never
be identified.

PTS: 2 DIF: Moderate REF: 9.5.3 The CAPM or the ICAPM?

MULTIPLE CHOICE

1. Which of the following is an issue associated with the calculation of consumption for practical
application in the CCAPM?
A. Goods are consumed immediately
B. Consumption figures are constant and relied on fro decisions
C. Expenditure is reported rather than consumption
D. all of these choices
ANS: C
From a practical perspective, there are a number of difficulties associated with applying the
CCAPM. First, the CCAPM requires a measure of aggregate consumption per capita. This data is
generally not available, and hence some proxy must be used. Ideally we want to measure the actual
value of consumption; however, consumption statistics tend to be expenditures. This implies that
goods are consumed immediately following their purchase, which of course is not true. Further, in
order to implement the CCAPM, we require consumption levels at particular points in time.
However, reported expenditure figures are for expenditure over a period rather than at a fixed point.
A final issue relates to the accuracy of the consumption data. Consumption data inevitably
provided in aggregate do not span the entire universe of consumption transactions, and are
therefore measured with error.

PTS: 2 DIF: Moderate REF: 9.2.1 Derivation of the CCAPM

2. The arbitrage pricing theory was developed by _________.

A. Henry Markowitz
B. Stephen Ross
C. William Sharpe
D. Eugene Fama
ANS: B
The Apt was developed by Ross (1976) at a time when there was growing questioning aver the
validity of the CAPM

PTS: 2 DIF: Easy REF: 9.3 The Arbitrage Pricing Theory (APT)

3. The most significant conceptual difference between the arbitrage pricing theory (APT) and the
capital asset pricing model (CAPM) is that the CAPM _____________.
A. places less emphasis on market risk
B. recognizes multiple unsystematic risk factors
C. recognizes only one systematic risk factor
D. recognizes multiple systematic risk factors

ANS: C

PTS: 2 DIF: Moderate REF: 9.3 The Arbitrage Pricing Theory (APT)

4. Calculate the consumption beta for an asset with a variance of 10%, where the variance of
consumption growth is 15% and the covariance between the growth rate in consumption and the
asset is 20%.
A. 0.15
B. 1.00
C. 1.25
D. 1.33
 ANS: D
Using equation 9.1, we can compute the beta as follows: 0.2/0.15 = 1.33.

PTS: 3 DIF: Difficult REF: 9.2.1 Derivation of the CCAPM

5. An asset in the Australian market has a consumption beta of 3.0. If the variance of the asset is 20%
and the variance of the growth rate in consumption is 12.5%, what is the asset’s covariance with
the growth rate in consumption?
A. 45%
B. 37.5%
C. 15%
D. 60%
ANS: B
Rearranging equation 9.1, and using the inputs provided, we can compute the covariance of the
asset with the growth rate in consumption to be 3 ´ 0.125 = 0.375.

PTS: 3 DIF: Difficult REF: 9.2.1 Derivation of the CCAPM

Factor 1 Factor 2 Factor 3 Factor 4

Risk premium 3.8% 4.4% 5.7% 5.9%
Asset sensitivity –1.2 -1.6 1.9 0.6

6. Given the factors pricing assets above and a risk-free rate of return of 6%, what is the expected
return of the asset using the APT?
A. 2.49%
B. 2.76%
C. 3.13%
D. 8.77%
ANS: D
Utilising equation 9.3, we can calculate the asset’s expected return as follows, 0.06 + (0.038
´ –1.2) + (0.044 ´ -1.6) + (0.057 ´ 1.9) + (0.059 ´ 0.6) = 0.0877 or 8.77%.

PTS: 2 DIF: Moderate REF: 9.3.2 The Ross model

7. One of the main problems with the arbitrage pricing theory is __________.
A. its use of several factors instead of a single market index to explain the risk-return
relationship
B. the introduction of nonsystematic risk as a key factor in the risk-return relationship
C. that the APT requires an even larger number of unrealistic assumptions than does the
CAPM
D. the model fails to identify the key macroeconomic variables in the risk-return relationship
ANS: D

PTS: 2 DIF: Moderate REF: 9.3.3 Problems with the APT

8. According to the Faff studies in 1992, which of the following models dominates in describing
equity returns in the Australian market?
A. the CAPM
B. a three-factor APT model
C. a ten-factor APT model
D. none of the above
 ANS: D
Priced factors are observed in the USA, and around five factors seem necessary for pricing. Faff
(1988, 1992) also identifies a small number of factors in Australian equity returns. Using data from
the period 1974–85, Faff (1988) identifies up to three priced factors. In a later paper, the sample
period is increased to include observations up to September 1987 and improved econometric
techniques are applied. In this test Faff (1992) observes that a five-factor APT model outperforms
a 10-factor APT model and the CAPM.

PTS: 3 DIF: Difficult REF: 9.3.4.1 Tests based on unobservable factors

9. Which of the following factors did Chen, Roll and Ross (1986) include in their APT model?
A. yearly growth in industrial production
B. change in expected inflation
C. Interest rate structures
D. all of the above
ANS: B
Chen, Roll and Ross (1986) note the difficulty with identifying factors, and select observable
variables that are expected to drive prices. Their research focuses on the ability of macroeconomic
variables to explain changes in share prices. Chen, Roll and Ross test for a variety of variables – a
set of which is provided in table 9.2, This table includes monthly growth in industrial production,
change in expected inflation, unexpected inflation, return on a value-weighted portfolio of New
York Stock Exchange and a risk premium.

PTS: 2 DIF: Moderate REF: 9.3.4.2 Tests based on arbitrarily selected

observable factors

10. The three factors that appear to be most relevant when testing the APT relate to:
A. unexpected interest rates, inflation and economic growth
B. expected interest rates, inflation and economic growth
C. expected and unexpected interest rates and economic growth
D. expected and unexpected interest rates and inflation
ANS: A
Despite a large volume of work, there is no clear consensus as to which particular variables are
relevant pricing factors. For instance, Cho, Eun and Senbet (1986) test the APT at the international
level for 11 industrial economies and report between one and five factors. However, in the main,
variables related to (unexpected) interest rate structures, inflation and economic growth appear to
be relevant most frequently.

PTS: 2 DIF: Moderate REF: 9.3.4.2 Tests based on arbitrarily selected

observable factors

11. Which of the following is NOT a factor used by Chen, Roll and Ross (1986) in their empirical test
of the APT?
A. industrial production
B. expected inflation
C. oil prices
D. unanticipated change in the term structure
ANS: C
 Chen, Roll and Ross (1986) note the difficulty with identifying factors and select observable
variables that are expected to drive prices. Their research focuses on the ability of macroeconomic
variables to explain changes in share prices. Chen, Roll and Ross test for a variety of variables—a
set of which is provided in table 9.2, page 291. This table includes monthly growth in industrial
production, change in expected inflation, unexpected inflation, return on a value-weighted
portfolio of New York Stock Exchange, unanticipated changes in the term structure and a risk
premium.

PTS: 3 DIF: Difficult REF: 9.3.4.2 Tests based on arbitrarily selected

observable factors

12. Which of the following is NOT a risk premium incorporated in the Fama and French (1992)
three-factor model of expected returns?
A. consumption premium
B. market premium
C. size premium
D. growth vs. value premium
ANS: A
Fama and French (1993, 1996) take a different approach to that followed by Chen, Roll and Ross
(1986). They use variables ‘that have no special standing in asset-pricing theory [but that] show
reliable power to explain the cross-section of average returns’. That is, they rely upon prior
research, which has shown there are some variables that for whatever reason appear relevant. The
variables chosen in the analysis include size and book-to-market value for equities and term
premium and default premium for bonds.

PTS: 3 DIF: Difficult REF: 9.4 Fama and French three-factor model

13. A major difference between the application of the ICAPM compared with the domestic CAPM is:
A. estimation of beta
B. no uniform risk-free rate
C. identification of market portfolio
D. all of the above
ANS: B
A number of complications arise when attempting to model in an international context. First, no
uniform risk-free rate exists for all markets. Second, the existence of exchange rates results in an
additional risk for investors, the effect of which needs to be included in the model. Exchange rate
risk means that investors in different countries will perceive the risk and return characteristics of
foreign investments differently.

PTS: 2 DIF: Moderate REF: 9.5.1 Development of the ICAPM

14. If the ICAPM beta is 0.8, and the world market return and risk-free rate are 12% and 5%
respectively, then the expected return predicted by the ICAPM is:
A. 6.0%
B. 8.8%
C. 10.6%
D. 12.4%
ANS: C
Using equation 9.10, and the inputs provided, we can compute the expected return as follows: 0.05
+ 0.8 (0.12 – 0.05) = 0.106 or 10.6%.

PTS: 2 DIF: Moderate REF: 9.5.1 Development of the ICAPM

15. If the All-Ordinaries has a beta with respect to the world market of 1.2, and the world market
return and risk-free rate are 12% and 6% respectively, then the expected return predicted by the
ICAPM for Australia is:
A. 8.8%
B. 10.6%
C. 12.8%
D. 13.2%
ANS: D
Using equation 9.10, we can compute the expected return for Australia as follows, 0.06 + 1.2
(0.12 – 0.06) = 0.132 or 13.2%.

PTS: 2 DIF: Moderate REF: 9.5.1 Development of the ICAPM

16. The ICAPM has been extended to a two-factor version by Adler and Dumas (1983) that
incorporates what additional type of risk?
A. oil price risk
B. exchange rate risk
C. consumption risk
D. inflation risk
ANS: B
Adler and Dumas (1983) provide a framework for the international pricing of securities
incorporating the different consumption preferences of individuals across national markets. The
model consists of two sources of risk. The first is the world market risk, akin to that in Solnik’s
model, while the second is for exchange rate risk.

PTS: 3 DIF: Difficult REF: 9.5.1 Development of the ICAPM

17. The international capital asset pricing model (ICAPM) assumes:

A. no investment restrictions
B. a completely integrated global financial market
C. a completely segmented global financial market
D. a completely integrated global financial market with no investment restrictions
ANS: D
The international capital asset pricing model (ICAPM) prices assets as if there are no national or
political boundaries. This model assumes a completely integrated global financial market in which
there are no barriers to capital flows and no investment restrictions.

PTS: 2 DIF: Moderate REF: 9.5 International asset pricing models

18. Using Solnik’s (1974) ICAPM, what is the expected return on an Australian security with a world
market beta of 0.78 if the Australian risk-free rate is 5.37%, the world risk-free rate is 1.7% and the
expected return on the world market portfolio is 13.19%?
A. 7.80%
B. 10.66%
C. 11.47%
D. 14.33%
ANS: D
Using equation 9.10, we can calculate the expected return on an Australian security in the
following way: E(Ri) = 0.0537 + 0.78(0.1319 – 0.017) = 0.1433 or 14.33%.
 PTS: 2 DIF: Moderate REF: 9.5.1 Development of the ICAPM

19. Considering the CAPM in an international context leads to further complications on top of those
associated with the local CAPM. These include:
A. foreign exchange rates
B. finding an appropriate market portfolio
C. finding a uniform risk-free rate
D. all of the above
ANS: A
A number of complications arise when attempting to model in an international context. First, no
uniform risk-free rate exists for all markets. Second, the existence of exchange rates results in an
additional risk for investors, the effect of which needs to be included in the model. Exchange rate
risk means that investors in different countries will perceive the risk and return characteristics of
foreign investments differently.

PTS: 2 DIF: Moderate REF: 9.5.1 Development of the ICAPM

Factor [E(RM) – RF) SMB HML

Sensitivity bi = 0.60 si = –0.44 hi = 0.28
Risk premium 12.7% -2.17% 3.25%

20. Assume the Fama–French model is the correct model to price assets. If an asset has the above
sensitivities and the risk-free rate is 5%, what is the asset’s expected return?
A. 16.1%
B. 15.2%
C. 14.5%
D. 20.5.%
ANS: C
Using equation 9.8, which can be expressed as E(Ri) = Rf + i[(Rm) – Rf] + siE(SMB) + hiE(HML),
the expected return can be calculated as E(R) = 0.05 +0.60(0.127) – 0.44(–0.0217) + 0.28(0.0325)
= 0.1448 or 14.5%.

PTS: 2 DIF: Moderate REF: 9.4.1 Model development

21. Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of 13%.
Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate of return is 10%. If
you wanted to take advantage of an arbitrage opportunity, you should take a short position in
portfolio __________ and a long position in portfolio _________.
A. A; A
B. A; B
C. B; A
D. B; B

ANS: C

PTS: 2 DIF: Moderate REF: 9.3.1 Arbitrage profits

22. An asset has the above sensitivity to the market portfolio and the risk-free rate is 6%. If an investor
uses the CAPM model, but the Fama–French model is the correct model, by how much is the
asset’s expected return differ?
A. 1.2%
B. 0.9%
C. 3.1%
D. 4.5.%
ANS: B
Using equation 9.8, which can be expressed as E(Ri) = Rf + i[(Rm) – Rf] + siE(SMB) + hiE(HML),
the expected return can be calculated as E(R) = 0.06 + 0.60(0.127) – 0.44(–0.0217) + 0.28(0.0325)
= 0.1448 or 14.5%. Hence, the Fama–French expected return is 14.5%. Using the CAPM (see the
case study on page 283), which can be expressed as E(Ri) = Rf + i[(Rm) – Rf], the expected return
can be calculated as E(R) = 0.06 +0.60(0.127) = 0.136 or 13.6%. Therefore, the CAPM understates
the true expected return by 0.145 – 0.136 = 0.009 or 0.9%.

PTS: 2 DIF: Moderate REF: 9.4.1 Model development

Factor [E(RM) – RF) SMB HML

Sensitivity bi = 1.75 si = –0.80 hi = 0.60
Risk premium 18.5% 5.25% 0.50%

23. Suppose the above asset is observed in the market trading with an expected return of 18%. What
strategy would you suggest to profit from this situation, assuming the CAPM was the correct
pricing model and the risk-free rate was 8%?
A. buy the asset
B. short-sell the asset
C. buy the risk-free asset
D. sell the market portfolio
ANS: B
The CAPM (see the case study on page 277) can be expressed as E(Ri) = Rf + i[(Rm) – Rf], and
hence the expected return for the asset can be calculated as E(R) = 0.08 + 1.75(0.12) = 0.29 or
29.0%. If the asset was observed in the market to be trading with a return of 28%, then the market
is out of equilibrium. The correct strategy would be to short-sell the asset, as it has a return lower
than expected by the CAPM model. That is, the price of the asset is too high (i.e. the return is to
low), and hence the investor can then profit from the expected future fall in price as the market
moves back into equilibrium.

PTS: 2 DIF: Moderate REF: 9.2.3 Empirical performance

24. Suppose the above asset is observed in the market trading with an expected return of 28%. What
strategy would you suggest to profit from this situation, assuming the Fama–French model was the
correct pricing model and the risk-free rate was 8%?
A. buy the asset
B. short-sell the asset
C. buy the risk-free asset
D. sell the market portfolio
ANS: A
 Using equation 9.8, which can be expressed as E(Ri) = Rf + i[(Rm) – Rf] + siE(SMB) + hiE(HML),
the expected return can be calculated as E(R) = 0.08 + 1.75(0.185) – 0.80(0.0525) + 0.60(0.005) =
0.251 or 25.1%. If the asset is observed in the market to be trading with a return of 28%, then the
market is out of equilibrium. The correct strategy would be to buy the asset, as it has a return that
is higher than expected by the Fama–French model. That is, the price of the asset is too low (i.e.
the return is too high), and hence the investor can then profit from the expected future rise in price
as the market moves back into equilibrium.

PTS: 2 DIF: Moderate REF: 9.2.3 Empirical performance, 9.4.1 Model

development

25. Marion and Birkan (i.e. M and B) are aspiring young investment students. During the lecture on
asset pricing, both were inspired by the beauty of the models presented. M found the CAPM model
overly simplistic and favoured the Fama–French model, while B disagreed, and instead believed
that the CAPM, being more theoretical, was the better model. As part of a class assignment, they
were each given the tabled information regarding an asset and asked to recommend a trading
strategy based upon their preferred asset pricing model. If the asset is observed in the market
trading with an expected return of 28%, and the risk-free rate is 8%, what are the relative trading
strategy recommendations of each investor?
A. Both M and B will recommend buying the asset
B. Both M and B will recommend short-selling the asset
C. M will recommend buying the asset, while B will recommend short-selling the asset
D. B will recommend buying the asset, while M will recommend short-selling the asset
ANS: C
Birkan (B) favours the CAPM: The CAPM (see the case study CCAPM Estimate for BHP Billiton)
can be expressed as E(Ri) = Rf + i[(Rm) – Rf], and hence the expected return for the asset can be
calculated as E(R) = 0.08 + 1.75(0.12) = 0.29 or 29.0%. If the asset were observed in the market to
be trading with a return of 28%, then the market is out of equilibrium. Therefore, B’s
recommendation, based on the CAPM, is that the asset’s return is too low, and hence the asset
should be short-sold.

Marion (M) favours the Fama–French model: Using equation 9.8, which can be expressed as E(Ri)
= Rf + i[(Rm) – Rf] + siE(SMB) + hiE(HML), the expected return can be calculated as E(R) = 0.08
+ 1.75(0.185) – 0.80(0.0525) + 0.60(0.005) = 0.251 or 25.1%. According to the Fama–French
model, the asset’s return is too high, and hence the correct strategy would be to buy the asset.

To summarise, M will recommend buying the asset, while B will recommend short-selling the
asset.

PTS: 3 DIF: Difficult REF: 9.2.3 Empirical performance, 9.4.1 Model

development

26. An arbitrage portfolio exists, including an asset A with a total market value of $60 000 and 100
other assets with a combined market value of $850 000. Assume that asset A is mispriced, with a
pricing error of 17%, while the remainder of the assets are priced correctly according to the factor
structure. What is the arbitrage portfolio pricing error?
A. 1.1%
B. 94.5%
C. 1.1%
D. 11.2%
ANS: C
 Following example 9.5, the arbitrage pricing error can be found according to: (60000/910000) 0.17
+ (850000/910000)0.00 = 0.011 or 1.1%.

PTS: 2 DIF: Moderate REF: 9.3.4.1 Tests based on unobservable factors

27. Using Solnik’s (1974) ICAPM, what is the expected return on an Australian security with a world
market beta of 1.2 if the Australian risk-free rate is 7%, the world risk-free rate is 3.5% and the
expected return on the world market portfolio is 22%?
A. 23.0%
B. 25.2%
C. 25.7%
D. 29.2%
ANS: D
Using equation 9.10, the expected return from the ICAPM is E(Ri) = 0.07 + 1.2(0.22 – 0.035) =
0.292 or 29.2%.

PTS: 2 DIF: Moderate REF: 9.5.1 Development of the ICAPM

28. Calculate the consumption beta for an asset with a standard deviation of 10%, where the variance
of consumption growth is 10% and the covariance between the growth rate in consumption and the
asset is 0.015.
A. 0.15
B. 0.50
C. 0.75
D. 1.50
ANS: D
The consumption beta is defined as the covariance of the asset with the growth rate of consumption
divided by the variance of the growth rate in consumption. That is; 0.015/(0.1)2 = 0.015/0.01 =
1.50.

PTS: 3 DIF: Difficult REF: 9.2.1 Derivation of the CCAPM

29. An asset in the Australian market has a consumption beta of 0.5. If the variance of the asset is
0.024 and the variance of the growth rate in consumption is 0.035, what is the asset’s covariance
with the growth rate in consumption?
A. 0.0010
B. 0.0120
C. 0.0175
D. 2.0830
ANS: C
The consumption beta is defined as the covariance of the asset with the growth rate of consumption
divided by the variance of the growth rate in consumption. In this case, we can solve for the
covariance by multiplying the consumption beta (0.5) by the variance of the growth rate in
consumption (0.035) to give an answer of 0.0175.

PTS: 2 DIF: Moderate REF: 9.2.1 Derivation of the CCAPM

30. Consider the multifactor APT with two factors. Portfolio A has a beta of .5 on factor 1 and a beta
of 1.25 on factor 2. The risk premiums on the factor 1 and 2 portfolios are 1% and 7%, respectively.
The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage
opportunities exist.
A. 13.5%
B. 15%
C. 16.25%
D. 23%

ANS: C
Using the equation 9.4 the basic pricing relationship of the APT
E(rA) = 7 + 0.5(1) + 1.25(7) = 16.25%

PTS: 2 DIF: Moderate REF: 9.2.1 Derivation of the CCAPM

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dress preparatory to a drive in Lady Betty’s great coach, Bauby
approaches her mysteriously with a little cluster of white rosebuds in
her hand.
“Muckle fash it has ta’en to get them at this time o’ the year, Miss
Katie, ye may depend,” said the oracular Bauby; “and ye ken best
yoursel wha they’re frae.”
The white rose—the badge of rebellion! But the little Whig puts it
happily in her breast, and, when Bauby leaves her, laughs aloud in
wonderment and pleasure; but, alas! only as she laughed, not very
long ago, at this new black mantle or these cambric ruffles; for you
are only a new plaything, gallant Sir Alexander, with some novelty
and excitement about you. You are not the hero.
 CHAPTER XII.
The little town of Anstruther stands on the side of the Firth,
stretching its lines of grey red-roofed houses closely along the margin
of the water. Sailing past its little quiet home-like harbour, you see
one or two red sloops peacefully lying at anchor beside the pier.
These sloops are always there. If one comes and another goes, the
passing spectator knows it not. On that bright clear water, tinged
with every tint of the rocky bed below—which, in this glistening
autumn day, with only wind enough to ruffle it faintly now and then,
looks like some beautiful jasper curiously veined and polished, with
streaks of salt sea-green, and sober brown, and brilliant blue, distinct
and pure below the sun—these little vessels lie continually, as much a
part of the scene as that grey pier itself, or the houses yonder of the
twin towns. Twin towns there must be, as you learn from those two
churches which elevate their little spires above the congregated
roofs. The spires themselves look as if, up to a certain stage of their
progress, they had contemplated being towers, but, changing their
mind when the square erection had attained the form of a box,
suddenly inclined their sides towards each other, and became abrupt
little steeples, whispering to you recollections of the Revolution
Settlement, and the prosaic days of William and Mary. In one of
them—or rather in its predecessor—the gentle James Melvill once
preached the Gospel he loved so well; and peacefully for two hundred
years have they looked out over the Firth, to hail the boats coming
and going to the sea-harvest; peacefully through their small windows
the light has fallen on little children, having the name named over
them which is above all names; and now with a homely reverence
they watch their dead.
A row of houses, straggling here and there into corners, turn their
faces to the harbour. This is called the Shore. And when you follow
the line of rugged pavement nearly to its end, you come upon boats,
in every stage of progress, being mended—here with a great patch in
the side—there resplendent in a new coat of pitch, which now is
drying in the sun. The boats are well enough, and so are the
glistering spoils of the “herring drave;” but quite otherwise is the
odour of dried and cured fish which salutes you in modern
Anstruther. Let us say no evil of it—it is villanous, but it is the life of
the town.
Straggling streets and narrow wynds climb a little brae from the
shore. Thrifty are the townsfolk, whose to-morrow, for generations,
is but a counterpart of yesterday. Nevertheless, there have been great
people here—Maggie Lauder, Professor Tennant, Dr Chalmers. The
world has heard of the quiet burghs of East and West Anster.
A mile to the westward, on the same sea-margin, lies Pittenweem,
another sister of the family. Turn along the high-road there, though
you must very soon retrace your steps. Here is this full magnificent
Firth, coming softly in with a friendly ripple, over these low, dark,
jutting rocks. Were you out in a boat yonder, you would perceive how
the folds of its great garment (for in this calm you cannot call them
waves) were marked and shaded. But here that shining vestment of
sea-water has one wonderful prevailing tint of blue; and between it
and the sky, lingers yonder the full snowy sails of a passing ship;—
here some red specks of fishing-boats straying down towards the
mouth of the Firth, beyond yon high rock—home of sea-mews—the
lighthouse Isle of May. Far over, close upon the opposite shore, lies a
mass of something grey and shapeless, resting like a great shell upon
the water—that is the Bass; and behind it there is a shadow on the
coast, which you can dimly see, but cannot define—that is Tantallon,
the stronghold of the stout Douglases; and westward rises the abrupt
cone of North Berwick Law, with a great calm bay stretching in from
its feet, and a fair green country retreats beyond, from the water-side
to the horizon line.
Turn now to the other hand, cross the high-road, and take this
footpath through the fields. Gentle Kellie Law yonder stands quietly
under the sunshine, watching his peaceful dominions. Yellow
stubble-fields stretch, bare and dry, over these slopes; for no late
acre now yields a handful of ears to be gleaned or garnered. But in
other fields the harvest work goes on. Here is one full of work-people
—quieter than the wheat harvest, not less cheery—out of the rich
dark fragrant soil gathering the ripe potato, then in a fresh youthful
stage of its history, full of health and vigour; and ploughs are pacing
through other fields; and on this fresh breeze, slightly chilled with
coming winter, although brightened still by a fervent autumnal sun,
there comes to you at every corner the odour of the fertile fruitful
earth.
Follow this burn;—it is the same important stream which forms
the boundary between Anstruther Easter and Wester; and when it
has led you a circuit through some half-dozen fields, you come upon
a little cluster of buildings gathered on its side. Already, before you
reach them, that rustling sound tells you of the mill; and now you
have only to cross the wooden bridge, (it is but two planks, though
the water foams under it,) and you have reached the miller’s door.
That little humble cot-house, standing respectfully apart, with the
miller’s idle cart immediately in front of it, is the dwelling-place of
Robert Moulter, the miller’s man; but the miller’s own habitation is
more ambitious. In the strip of garden before the door there are
some rose-bushes, some “apple-ringie,” and long plumes of
gardener’s garters; and there is a pointed window in the roof, bearing
witness that this is a two-storied house of superior accommodation:
the thatch itself is fresh and new—very different from that mossy
dilapidated one of the cottar’s house; and above the porch flourishes
a superb “fouat.” The door, as usual, is hospitably open, and you see
that within all are prepared for going abroad; for there is a penny
wedding in the town, which already has roused all Anster.
Who is this, standing by the window, cloaked and hooded, young,
but a matron, and with that beautiful happy light upon her face?
Under her hood, young as she is, appears the white edge of lace,
which proves her to have assumed already, over the soft brown
shining hair which crosses her forehead, the close cap of the wife; but
nothing remains of the old shy sad look, to tell you that this is Isabell
Stewart. Nor is it. Mrs Stewart there, in her crimson plaid and velvet
hood, who is at present delivering a lecture on household economics,
to which her daughter listens with a happy smile, would be the first
to set you right if you spoke that old name. Not Isabell Stewart—
Leddy Kilbrachmont!—a landed woman, head of a plentiful
household, and the crown and honour of the thrifty mother, whose
training has fitted her for such a lofty destiny, whose counsels help
her to fill it so well.
Janet, equipped like the rest, goes about the apartment, busily
setting everything “out of the road.” The room is very much like the
family room in Kellie Mill: domestic architecture of this homely class
is not capable of much variety; and hastily Janet thrusts the same
pretty wheel into a corner, and her mother locks the glistening doors
of the oak aumrie. Without stands Philip Landale, speaking of his
crops to the miller; and a good-looking young sailor, fiancée of the
coquettish Janet, lingers at the door, waiting for her.
But there is another person in the background, draping the black
lace which adorns her new cloak gracefully over her arm, throwing
back her shoulders with a slightly ostentatious, disdainful
movement, and holding up her head like Lady Anne. Ah, Katie!
simple among the great people, but very anxious to look like a grand
lady among the small! Very willing are you in your heart to have the
unsophisticated fun of this penny wedding to which you are bound,
but with a dignified reluctance are you preparing to go; and though
Isabell smiles, and Janet pretends to laugh, Janet’s betrothed is
awed, and thinks there is something very magnificent about Lady
Anne Erskine’s friend. They make quite a procession as they cross
the burn, and wind along the pathway towards the town;—Janet and
her companion hurrying on first; young Kilbrachmont following,
very proud of the wife who holds his arm, and looking with smiling
admiration on the little pretty sister at his other hand; while the
miller and his wife bring up the rear.
“Weel, I wouldna be a boaster,” said Mrs Stewart; “it would ill set
us, wi’ sae muckle reason as we have to be thankful. But just look at
that bairn. It’s my fear she’ll be getting a man o’ anither rank than
ours, the little cuttie! I wouldna say but she looks down on
Kilbrachmont his ain very sel.”
“She’s no blate to do onything o’ the kind,” said the miller.
“And how’s the like o’ you to ken?” retorted his wife. “It’s my ain
blame, nae doubt, for speaking to ye. Ye’re a’ very weel with your
happer and your meal, John Stewart; but what should you ken about
young womenfolk?”
“Weel, weel, sae be it, Isabell,” said John. “It’s a mercy ye think ye
understand yoursels, for to simple folk ye’re faddomless, like the
auld enemy. I pretend to nae discernment amang ye.”
“There winna be ane like her in the haill Town House,” said Mrs
Stewart to herself; “no Isabell even, let alane Janet; and the bit
pridefu’ look—the little cuttie!—as if she was ony better than her
neighbours.”
The Town House of West Anster is a low-roofed, small-windowed
room, looking out to the churchyard on one side, and to a very quiet
street on the other; for West Anster is a suburban and rural place, in
comparison with its more active brother on the other side of the
burn, by whom it is correspondingly despised. Climbing up a narrow
staircase, the party entered the room, in which at present there was
very little space for locomotion, as two long tables, flanked by a
double row of forms, and spread for a dinner, at which it was evident
the article guest would be a most plentiful one, occupied almost the
whole of the apartment. The company had just begun to assemble;
and Katie, now daintily condescending to accept her brother-in-law’s
arm, returned with him to the foot of the stair, there to await the
return of the marriage procession from the manse, at which just now
the ceremony was being performed.
The street is overshadowed by great trees—which, leaning over the
churchyard wall on one side, and surrounding the manse, which is
only a few yards further down, on the other—darken the little street,
and let in the sunshine picturesquely, in bars and streaks, through
the thinning yellow foliage. There is a sound of approaching music; a
brisk fiddle, performing “Fy let us a’ to the bridal,” in its most
animated style; and gradually the procession becomes visible,
ascending from the dark gates of the manse. The bridegroom is an
Anster fisherman. They have all the breath of salt water about them,
these blue-jacketed sturdy fellows who form his retinue, with their
white wedding favours. And creditable to the mother town are those
manly sons of hers, trained to danger from the cradle. The bride is
the daughter of a Kilbrachmont cottar—was a servant in
Kilbrachmont’s house; and it is the kindly connection between the
employer and the employed which brings the whole family of
Landales and Stewarts to the penny wedding. She is pretty and
young, this bride; and the sun glances in her hair, as she droops her
uncovered head, and fixes her shy eyes on the ground. A long train of
attendant maidens follow her; and nothing but the natural tresses,
snooded with silken ribbons, adorn the young heads over which
these bright lines of sunshine glisten as the procession passes on.
 With her little cloak hanging back upon her shoulders, and her
small head elevated, looking down, or rather looking up, (for this
humble bride is undeniably taller than little Katie Stewart,) and
smiling a smile which she intends to be patronising, but which by no
means succeeds in being so, Katie stands back to let the bride pass;
and the bride does pass, drooping her blushing face lower and lower,
as her master wishes her joy, and shakes her bashful reluctant hand.
But the bridesmaid, a simple fisherman’s daughter, struck with
admiration of the little magnificent Katie, abruptly halts before her,
and whispers to the young fisherman who escorts her, that
Kilbrachmont and the little belle must enter first. Katie is pleased:
the girl’s admiration strikes her more than the gaping glances of ever
so many rustic wooers; and with such a little bow as Lady Anne
might have given, and a rapid flush mounting to her forehead, in
spite of all her pretended self-possession, she stepped into the
procession, and entered the room after the bride.
Who is this so busy and popular among the youthful company
already assembled? You can see him from the door, though he is at
the further end of the room, overtopping all his neighbours like a
youthful Saul. And handsomely the sailor’s jacket sits on his active,
well-formed figure; and he stoops slightly, as though he had some
fear of this low dingy roof. He has a fine face too, browned with
warm suns, and gales; for William Morison has sailed in the
Mediterranean, and is to be mate, this next voyage, of the gay Levant
schooner, which now lies loading in Leith harbour. Willie Morison!
Only the brother of Janet’s betrothed, little Katie; so you are
prepared to be good to him, and to patronise your future brother-in-
law.
His attention was fully occupied just now. But suddenly his
popularity fails in that corner, and gibes take the place of
approbation. What ails him? What has happened to him? But he
does not answer; he only changes his place, creeping gradually
nearer, nearer, looking—alas, for human presumption!—at you, little
Katie Stewart—magnificent, dignified you!
It is a somewhat rude, plentiful dinner; and there is a perfect
crowd of guests. William Wood, the Elie joiner, in the dark corner
yonder, counts the heads with an inward chuckle, and congratulates
himself that, when all these have paid their half-crowns, he shall
carry a heavy pocketful home with him, in payment of the homely
furniture he has made; and the young couple have the price of their
plenishing cleared at once. But the scene is rather a confused noisy
scene, till the dinner is over.
Now clear away these long encumbering tables, and tune your
doleful fiddles quickly, ye musical men, that the dancers may not
wait. Katie tries to think of the stately minuets which she saw and
danced in Edinburgh; but it will not do: it is impossible to resist the
magic of those inspiriting reels; and now Willie Morison is bending
his high head down to her, and asking her to dance.
Surely—yes—she will dance with him—kindly and
condescendingly, as with a connection. No fear palpitates at little
Katie’s heart—not a single throb of that tremor with which she saw
Sir Alexander approach the window-seat in Lady Colville’s drawing-
room; and shy and quiet looks Willie Morison, as she draws on that
graceful lace glove of hers, and gives him her hand.
Strangely his great fingers close over it, and Katie, looking up with
a little wonder, catches just his retreating, shrinking eye. It makes
her curious, and she begins to watch—begins to notice how he looks
at her stealthily, and does not meet her eye with frankness as other
people do. Katie draws herself up, and again becomes haughty, but
again it will not do. Kindly looks meet her on all sides, friendly
admiration, approbation, praise; and the mother watching her
proudly yonder, and those lingering shy looks at her side. She plays
with her glove in the intervals of the dance—draws it up on her white
arm, and pulls it down; but it is impossible to fold the wings of her
heart and keep it still, and it begins to flutter with vague terror, let
her do what she will to calm its beating down.
 CHAPTER XIII.
The burn sings under the moon, and you cannot see it; but yonder
where it bends round the dark corner of this field, it glimmers like a
silver bow. Something of witchcraft and magic is in the place and
time. Above, the sky overflooded with the moonbeams; behind, the
Firth quivering and trembling under them in an ecstasy of silent
light; below, the grass which presses upon the narrow footpath so
dark and colourless, with here and there a visible gem of dew shining
among its blades like a fallen star. Along that high-road, which
stretches its broad white line westward, lads and lasses are trooping
home, and their voices strike clearly into the charmed air, but do not
blend with it, as does that lingering music which dies away in the
distance far on the other side of the town, and the soft voice of this
burn near at hand. The homeward procession to the Milton is
different from the outward bound. Yonder, steadily at their sober
everyday pace, go the miller and his wife. You can see her crimson
plaid faintly, through the silvered air which pales its colour; but you
cannot mistake the broad outline of John Stewart, or the little active
figure of the mistress of the Milton. Young Kilbrachmont and Isabell
have gone home by another road, and Janet and her betrothed are
“convoying” some of their friends on the way to Pittenweem, and will
not turn back till they pass that little eerie house at the Kirk Latch,
where people say the Red Slippers delight to promenade; so never
look doubtingly over your shoulder, anxious Willie Morison, in fear
lest the noisy couple yonder overtake you, and spoil this silent
progress home. Now and then Mrs Stewart, rapidly marching on
before, turns her head to see that you are in sight; but nothing else—
for gradually these voices on the road soften and pass away—comes
on your ear or eye unpleasantly to remind you that there is a host of
beings in the world, besides yourself and this shy reluctant
companion whose hand rests on your arm.
For under the new laced mantle, of which she was so proud this
morning, Katie Stewart’s heart is stirring like a bird. She is a step in
advance of him, eager to quicken this slow pace; but he lingers—
constantly lingers, and some spell is on her, that she cannot bid him
hasten. Willie Morison!—only the mate of that pretty Levant
schooner which lies in Leith harbour; and the little proud Katie tries
to be angry at the presumption which ventures to approach her—her,
to whom Sir Alexander did respectful homage—whom the
Honourable Andrew signalled out for admiration; but Katie’s pride,
only as it melts and struggles, makes the magic greater. He does not
speak a great deal; but when he does, she stumbles strangely in her
answers; and then Katie feels the blood flush to her face, and again
her foot advances quickly on the narrow path, and her hand makes a
feint to glide out of that restraining arm. No, think it not, little Katie
—once you almost wooed your heart to receive into it, among all the
bright dreams which have their natural habitation there, the courtly
youthful knight, whose reverent devoirs charmed you into the land of
old romance; but, stubborn and honest, the little wayward heart
refused. Now let your thoughts, alarmed and anxious, press round
their citadel and keep this invader out. Alas! the besieged fortress
trembles already, lest its defenders should fail and falter; and angry
and petulant grow the resisting thoughts, and they swear to rash
vows in the silence. Rash vows—vows in which there lies a hot
impatient premonition, that they must be broken very soon.
Under those reeds, low beneath those little overhanging banks,
tufted with waving rushes, you scarcely could guess this burn was
there, but for the tinkling of its unseen steps; but they walk beside it
like listeners entranced by fairy music. The silence does not oppress
nor embarrass them now, for that ringing voice fills it up, and is like
a third person—a magical elfin third person, whose presence disturbs
not their solitude.
“Katie!” cries the house-mother, looking back to mark how far
behind those lingerers are; and Katie again impatiently quickens her
pace, and draws her companion on. The burn grows louder now,
rushing past the idle wheel of the mill, and Mrs Stewart has crossed
the little bridge, and they hear, through the still air, the hasty sound
with which she turns the great key in the door. Immediately there are
visible evidences that the mistress of the house is within it again, for
a sudden glow brightens the dark window, and throws a cheerful
flickering light from the open door; but the moon gleams in the dark
burn, pursuing the foaming water down that descent it hurries over;
and the wet stones, which impede its course, glimmer dubiously in
the light which throws its splendour over all. Linger, little Katie—
slower and slower grow the steps of your companion; linger to make
the night beautiful—to feel in your heart as you never felt before, how
beautiful it is.
Only Willie Morison! And yet a little curiosity prompts you to look
out and watch him from your window in the roof as you lay your
cloak aside. He is lingering still by the burn—leaving it with
reluctant, slow steps—looking back and back as if he could not make
up his mind to go away; and hastily, with a blush which the darkness
gently covers, you withdraw from the window, little Katie, knowing
that it is quite impossible he could have seen you, yet trembling lest
he has.
The miller has the great Bible on the table, and bitter is the reproof
which meets the late-returning Janet, as her mother stands at the
open door and calls to her across the burn. It is somewhat late, and
Janet yawns as she seats herself in the background, out of the
vigilant mother’s eye, which, seeing everything, gives no sign of
weariness; and Katie meditatively leans her head upon her hand, and
places her little Bible in the shadow of her arm, as the family
devotion begins. But again and again, before it has ended, Katie feels
the guilty blood flush over her forehead; for the sacred words have
faded from before her downcast eyes, and she has seen only the
retreating figure going slowly away in the moonlight—a blush of
indignant shame and self-anger, too, as well as guilt; for this is no Sir
Alexander—no hero—but only Willie Morison.
“Send that monkey hame, Isabell,” said John Stewart. He had just
returned thanks and taken up his bonnet, as he rose from their
homely breakfast-table next morning. “Send that monkey hame, I
say; I’ll no hae my house filled wi’ lads again for ony gilpie’s pleasure.
Let Katie’s joes gang up to Kellie if they maun make fules o’ themsels.
Janet’s ser’d, Gude be thankit; let’s hae nae mair o’t noo.”
“It’s my desire, John Stewart, you would just mind your ain
business, and leave the house to me,” answered his wife. “If there’s
ae sight in the world I like waur than anither, it’s a man pitting his
hand into a house-wifeskep. I ne’er meddle with your meal. Robbie
and you may be tooming it a’ down the burn, for ought I ken; but
leave the lassies to me, John, my man. I hae a hand that can grip
them yet, and that’s what ye ne’er were gifted with.”
 The miller shrugged his shoulders, threw on his bonnet, but
without any further remonstrance went away.
“And how lang are ye to stay, Katie?” resumed Mrs Stewart.
“I’ll gang up to Kilbrachmont, if ye’re wearying on me, mother,”
answered the little belle.
“Haud your peace, ye cuttie. Is that a way to answer your mother,
and me slaving for your guid, nicht and day? But hear ye, Katie
Stewart, I’ll no hae Willie Morison coming courting here; ae scone’s
enow o’ a baking. Janet there is to be cried with Alick—what he could
see in her, I canna tell—next Sabbath but twa; and though the
Morisons are very decent folk, we’re sib enough wi’ ae wedding. So
ye’ll mind what I say, if Willie Morison comes here at e’en.”
“I dinna ken what you mean, mother,” said Katie indignantly.
“I’ll warrant Katie thinks him no guid enough,” said Janet, with a
sneer.
“Will ye mind your wark, ye taupie? What’s your business with
Katie’s thoughts? And let me never mair see you sit there with a red
face, Katie Stewart, and tell a lie under my very e’en. I’ll no thole’t.
Janet, redd up that table. Merran, you’re wanted out in the East
Park; if Robbie and you canna be done with that pickle taties the day,
ye’ll ne’er make saut to your kail; and now I’m gaun in to Anster
mysel’—see ye pit some birr in your fingers the time I’m away.”
“Never you heed my mother, Katie,” said Janet benevolently, as
Mrs Stewart’s crimson plaid began to disappear over the field. “She
says aye a hantle mair than she means; and Willie may come the
nicht, for a’ that.”
“Willie may come! And do you think I care if he never crossed
Anster Brig again?” exclaimed Katie with burning indignation.
“Weel, I wouldna say. He’s a bonnie lad,” said Janet, as she lifted
the shining plates into the lower shelf of the oak aumrie. “And if you
dinna care, Katie, what gars ye have such a red face?”
“It’s the fire,” murmured Katie, with sudden humiliation; for her
cheeks indeed were burning—alas! as the brave Sir Alexander’s name
could never make them burn.
“Weel, he’s to sail in three weeks, and he’ll be a fule if he troubles
his head about a disdainfu’ thing that wouldna stand up for him, puir
chield. The first night ever Alick came after me, I wouldna have held
my tongue and heard onybody speak ill of him; and yesterday’s no
the first day—no by mony a Sabbath in the kirk, and mony a night at
hame—that Willie Morison has gien weary looks at you.”
“He can keep his looks to himsel,” said Katie angrily, as the wheel
birled under her impatient hand. “It was only to please ye a’ that I let
him come hame with me last night; and he’s no a bonnie lad, and I
dinna care for him, Janet.”
Janet, with the firelight reddening that round, stout, ruddy arm,
with which she lifts from the crook the suspended kettle, pauses in
the act to look into Katie’s face. The eyelashes tremble on the flushed
cheek—the head is drooping—poor little Katie could almost cry with
vexation and shame.
Merran is away to the field—the sisters are alone; but Janet only
ventures to laugh a little as she goes with some bustle about her
work, and records Katie’s blush and Katie’s anger for the
encouragement of Willie Morison. Janet, who is experienced in such
matters, thinks these are good signs.
And the forenoon glides away, while Katie sits absorbed and silent,
turning the pretty wheel, and musing on all these affronts which have
been put upon her. Not the first by many days on which Willie
Morison has dared to think of her! And she remembers Sir
Alexander, and that moonlight night on which she watched him
looking up at Lady Anne Erskine’s window, but very faintly, very
indifferently, comes before her the dim outline of the youthful
knight; whereas most clearly visible in his blue jacket, and with the
fair hair blown back from his ruddy, manly face, appears this
intruder, this Willie Morison.
The days are growing short. Very soon now the dim clouds of the
night droop over these afternoon hours in which Mrs Stewart says,
“Naebody can ever settle to wark.” It is just cold enough to make the
people out of doors brisk in their pace, and to quicken the blood it
exhilarates; and the voices of the field-labourers calling to each other
as the women gather up the potato baskets and hoes which they have
used in their work, and the men loose their horses from the plough,
and lead them home, ring into the air with a clear musical cadence
which they have not at any other time. Over the dark Firth, from
which now and then you catch a long glistening gleam, which alone
in the darkness tells you it is there, now suddenly blazes forth that
beacon on the May. Not a sober light, shining under glass cases with
the reflectors of science behind, but an immense fire piled high up in
that iron cage which crowns the strong grey tower; a fiery, livid,
desperate light, reddening the dark waters which welter and plunge
below, so that you can fancy it rather the torch of a forlorn hope,
fiercely gleaming upon ships dismasted and despairing men, than
the soft clear lamp of help and kindness guiding the coming and
going passenger through a dangerous way.
The night is dark, and this ruddy window in the Milton is innocent
of a curtain. Skilfully the fire has been built, brightly it burns, paling
the ineffectual lamp up there, in its cruise on the high mantelpiece.
The corners of the room are dark, and Merran, still moving about
here and there, like a wandering star, crosses the orbit of this homely
domestic sun, and anon mysteriously disappears into the gloom.
Here, in an arm-chair, sits the miller, his bonnet laid aside, and in
his hand a Caledonian Mercury, not of the most recent date, which
he alternately elevates to the lamplight, and depresses to catch the
bright glow of the fire; for the miller’s eyes are not so young as they
once were, though he scorns spectacles still.
Opposite him, in the best place for the light, sits Mrs Stewart,
diligently mending a garment of stout linen, her own spinning, which
time has begun slightly to affect. But her employment does not
entirely engross her vigilant eyes, which glance perpetually round
with quick scrutiny, accompanied by remark, reproof, or bit of pithy
advice—advice which no one dares openly refuse to take.
Janet is knitting a grey “rig-and-fur” stocking, a duplicate of these
ones which are basking before the fire on John Stewart’s substantial
legs. Constantly Janet’s clue is straying on the floor, or Janet’s wires
becoming entangled; and when her mother’s eyes are otherwise
directed, the hoiden lets her hands fall into her lap, and gives her
whole attention to the whispered explosive jokes which Alick
Morison is producing behind her chair.
Over there, where the light falls fully on her, though it does not do
her so much service as the others, little Katie gravely sits at the
wheel, and spins with a downcast face. Her dress is very carefully
arranged—much more so than it would have been in Kellie—and the
graceful cambric ruffles droop over her gloved arms, and she holds
her head, stooping a little forward indeed, but still in a dignified
attitude, with conscious pride and involuntary grace. Richly the
flickering firelight brings out the golden gloss of that curl upon her
cheek, and the cheek itself is a little flushed; but Katie is
determinedly grave and dignified, and very rarely is cheated into a
momentary smile.
For he is here, this Willie Morison! lingering over her wheel and
her, a great shadow, speaking now and then when he can get an
opportunity; but Katie looks blank and unconscious—will not hear
him—and holds her head stiffly in one position rather than catch a
glimpse of him as he sways his tall person behind her. Other
lingering figures, half in the gloom, half in the light, encircle the little
company by the fireside, and contribute to the talk, which, among
them, is kept up merrily—Mrs Stewart herself leading and directing
it, and only the dignified Katie quite declining to join in the gossip
and rural raillery, which, after all, is quite as witty, and—save that it
is a little Fifish—scarcely in any respect less delicate than the
badinage of more refined circles.
“It’s no often Anster gets a blink of your daughter. Is Miss Katie to
stay lang?” asked a young farmer, whom Katie’s dress and manner
had awed into humility, as she intended they should.
“Katie, ye’re no often so mim. Whatfor can ye no answer yoursel?”
said Mrs Stewart.
“Lady Anne is away to England with Lady Betty—for Lord
Colville’s ship’s come in,” said Katie sedately. “There’s nobody at the
Castle but Lady Erskine. Lady Anne is to be back in three weeks. She
says that in her letter.”
In her letter! Little Katie Stewart then receives letters from Lady
Anne Erskine! The young farmer was put down; visions of seeing her
a countess yet crossed his eyes and disenchanted him. “She’ll make a
bonnie lady; there’s few of them like her; but she’ll never do for a
poor man’s wife,” he muttered to himself as he withdrew a step or
two from the vicinity of the unattainable sour plums.
But not so Willie Morison. “I’ll be three weeks of sailing mysel,”
said the mate of the schooner, scarcely above his breath; and no one
heard him but Katie.
 Three weeks! The petulant thoughts rushed round their fortress,
and vowed to defend it to the death. But in their very heat, alas! was
there not something which betrayed a lurking traitor in the citadel,
ready to display the craven white flag from its highest tower?
 GOLD—EMIGRATION—FOREIGN DEPENDENCE
—TAXATION.

Before the following pages issue from the press, the contest
involved in the Parliamentary Elections will be over. It is useless to
speculate, therefore, on what will so soon be determined by a result
which, for the time at least, will settle who is to hold the reins of
power. Recording our confident hope that the Conservative party will
obtain such a majority as may enable them to carry on the
Government on those principles which can alone heal the wounds
and allay the feuds which the policy of their predecessors have
implanted in this country, it is of more importance at this time to
inquire into the great and lasting interests of the nation, and the
present circumstances in our ever-changing situation which most
loudly call for attention, and must ere long force themselves upon the
consideration of whatever Government is placed by the people at the
head of affairs. The observations we are to offer are chiefly of a
practical and remedial kind; for the changes to which they refer are
such as are altogether beyond the reach of dispute, and on which all
parties, however much divided on other subjects, are agreed.
The first of these subjects, in point of importance, beyond all
question, both to the present interests and future destinies of the
Empire, is the vast increase in the annual supply of gold for the use
of the globe, which the late discoveries in California and Australia
have made. Here, fortunately, there is no room for dispute; and, in
fact, there is no dispute about the facts. It is conceded on all sides
that the annual supply of the precious metals, before the new
discoveries, was somewhat below £10,000,000 a-year; of which
about £6,000,000 was the annual waste by the wearing of coin, or
the absorption of the precious metals in objects of luxury; and that
before the end of 1851 this annual supply had risen to £30,000,000.
There has been very little addition to the annual waste; so that the
quantity annually added to the sum total of the precious metals in
this world has been multiplied at least fivefold during the last three
years. It has risen from £4,000,000 annually to at least
£20,000,000. And the recent accounts from Australia leave no room
for doubt that this increase in the supply, how great soever, will be
largely added to; for it appears that from 9th October to 9th April the
yield of the Australian gold mines was above £3,000,000; and there
appears to be no limits to the extent of the auriferous regions. It is
quite certain, therefore, that the annual addition to the stock of the
precious metals in the globe, will this year, and for a long period to
come, be at least SIX TIMES what it was before Providence revealed
these hidden treasures to a suffering world.
The effect of this upon the price of gold may be judged of by the
fact, that that metal is now selling at Melbourne for £3 an ounce,
while the Mint price is £3, 17s. 10½d., which the bank is still obliged
to give for all the gold brought to its doors! Sir Robert Peel said that
“he could not by any effort of his understanding form any other idea
of a pound sterling but a certain determinate weight of gold metal;”
and the Times, in the pride of its heart at the vast effect of his
monetary system in depressing the price of produce of every soil, and
enhancing the value of money, boasted, within the last three years,
that that system “had rendered the sovereign worth two
sovereigns.” We have not observed lately anything said in that able
journal about the incomparable steadiness of a standard of value
founded on “a determinate weight of gold;” nor do we hear any
repetition, by its gifted authors, of its boasts about having rendered
“the sovereign worth two sovereigns.” On the contrary, according to
their usual system, when they see a change fairly set in, and likely to
be lasting, they have gone at once over to the other side, and fairly
out-Heroded Herod in their estimate of the prodigious effect upon
general prices of the vast additions recently made to the metallic
treasures of the world. The journal which was so strong upon Sir
Robert Peel’s policy having rendered the sovereign worth two
sovereigns, has lately issued the following just and striking
observations upon the probable effect on prices of all sorts of the
entire repeal of that policy by the hand of nature:—
 “To arrive at an exact solution, it would be necessary to ascertain the amount of
gold and silver in the world, and the present annual consumption for coinage and
the arts. This is impossible, and conjectural quantities must consequently be taken.
The total of coin has been guessed at £400,000,000. Of this £150,000,000 may be
assumed to be gold, and £250,000,000 silver. The annual consumption of gold is
believed to be under £6,000,000.
“Starting with these figures, if the demand for gold were likely to continue
limited to its ordinary amount, an estimate of the effect of the supplies now
pouring upon us could easily be formed. Those supplies within the few years since
the discovery of California have probably in the aggregate left us an excess of
upwards of £30,000,000 over what has hitherto been found sufficient for current
wants, and to maintain an equilibrium in the general relations of property. The
increase, therefore, has been equal to 20 per cent on the whole sum in existence; in
other words, the measure of value would appear to have been extended one-fifth,
(just as if a 25-inch measure were extended to 30 inches,) and hence the effect to
be looked for is obvious. Where gold is the standard, the price of every article
adjusts itself to the relation it bears to that metal. If sovereigns were twice as
numerous, a man would demand two where he now takes one. An increase of 20
per cent in the supply should, therefore, have been followed by a proportionate
advance in the nominal value of all things.
“We have now, however, to consider the future. So long as there is any silver, to
be supplanted in countries where, owing to the existence of a double standard, it is
optional for the debtor to pay either in gold or in silver, the effects of the increased
production will continue to be extended to both metals, and consequently, if the
surplus of gold this year should be, as has been estimated, £25,000,000, its
influence upon prices could be but 6 or 7 per cent. But the period must rapidly
approach when the displacement of silver will have ended, and when the changes
brought about will be upon gold alone. In France the existing amount of silver is
still, doubtless, very large; but this is not the case in the United States, and the
proposed law by which the coins below a dollar are to be deteriorated 6.91 per cent
will prevent for the present any action upon that portion of the stock. In Germany
the debased state of the silver coinage will likewise for a long time preserve it from
displacement. In Holland, silver has been already established as the standard, and
cannot therefore be driven out. With regard to Eastern nations, it is difficult to
form any estimate. On the whole, however, we may infer the possibility of the
displacement process still occupying three or four years, and that during that time,
therefore, the effects to be produced will be spread, as they have thus far been, over
both metals.
“At the end of that period, the consequences will be felt by gold alone, and the
relations of property measured by a gold standard will proportionably exhibit a
more rapid disturbance. At the same time, it must not be overlooked that the
increase of gold each year will have meanwhile diminished the per-centage of
alteration which would otherwise take place. For instance, the total amount of gold
in the world, which is now assumed at £150,000,000, would then possibly be
£250,000,000; and a production which, operating upon the first sum, would cause
a rise in prices of 10 per cent, would, under those circumstances, cause only an
additional rise of 6 per cent. This is a feature of great importance in the whole
question, because it will constantly tend to counteract that increasing ratio of
disturbance which might be anticipated if the supply of each succeeding year
should prove larger and larger. It is likewise to be borne in mind that, with a
diminution in the purchasing power of gold, there will be a proportionate
diminution in the inducement to seek it. If the quantity of gold were doubled to-
morrow, a man who is at present content to work for one ounce a-week would then
not be satisfied with less than two ounces.
“In the face, however, of these qualifying circumstances, and of the uncertainty
of all the assumed totals that have been dealt with, it will be plain to most persons
that there is enough to suggest some very decided ideas as to the main results that
are coming on. A mistake of a hundred millions in the figures one way or the other
would only make a difference of three or four years (where the annual supply is at
the rate of £30,000,000) in the date of fulfilment. Even if we were to take the
whole £400,000,000 of assumed money as liable to be acted upon, it would
require little more than fifteen years of the existing production to cause an
alteration in the relations of property of 50 per cent.”—Times, June 20, 1852.

These are abundantly curious statements to come from the leading

journal in the monied interest, which has so long supported Sir
Robert Peel’s monetary policy, which went to make money dear and
everything else cheap, and boasted, with smiling complacency, that
he had succeeded in making the sovereign worth two sovereigns, and
of course doubling the weight of every tax and shilling of debt, public
and private, throughout the realm. So great a change makes us
despair of nothing; and we even look forward with some confidence
to the advent of a period when The Times, as a “State necessity”
which can no longer be avoided, will be the first to advocate a return
to protection on every species of industry within the realm.
We should greatly err if we measured the effects of this vast
addition to the metallic treasures of the globe merely by its effect in
raising prices, great and important as that effect undoubtedly is. That
it will raise prices, gradually, indeed, but certainly, so that in twenty
years they will have reached the level they had attained during the
extensive demand and plentiful paper circulation of the war, may be
considered certain. No human power can arrest the change any more
than it can the rays of summer or the rains of autumn; and,
therefore, all concerned—money-lenders, money-borrowers,